NCPA - National Center for Policy Analysis

Three Simple Ways Medicare Can Save Money

August 11, 2011

The most significant reason for our out-of-control deficit spending is health care.  And the biggest federal health care program is Medicare.  That's why almost everybody agrees that Medicare must be reformed.  A good place to start is recognizing that what Medicare is trying to do is impossible, says John C. Goodman, president and CEO of the National Center for Policy Analysis.

Each price Medicare pays is tied to a patient with a condition.  And with the 7,500 things doctors could possibly do to treat a given condition, Medicare has to be just as diligent in not paying for inappropriate care as it is in paying for procedures that should be done.  So, in fact, Medicare isn't just setting prices.  It is regulating whole transactions.

What happens when Medicare gets it wrong?

  • One result is that doctors face perverse incentives to provide care that is costlier and less appropriate than the care they should be providing.
  • Another result is that the skill set of our nation's doctors becomes misallocated, as medical students and practicing doctors respond to the fact that Medicare is overpaying for some skills and underpaying for others.

A more sensible approach is to begin the process of allowing medical fees to be determined the way prices are determined everywhere else in our economy -- in the marketplace.  Here are three ways to start:

  • First, Medicare should allow enrollees to obtain care at almost all walk-in, free-standing emergency-care clinics that post prices and usually deliver high-quality care. Since these fees are well below what Medicare would have paid at a physician's office or hospital emergency room, this reform would lower Medicare's overall costs.
  • Second, Medicare should allow enrollees to take advantage of commercial telephone and e-mail services. Again, it is important to pay the market price, not Medicare's price, although Medicare patients should probably pay a good portion of the cost of each phone call out of pocket.
  • Finally, Medicare should encourage physicians to repackage and reprice their services in ways that are good for the doctor, good for the patient and good for Medicare. For example, Medicare should encourage concierge doctor arrangements.

Source: John C. Goodman, "Three Simple Ways Medicare Can Save Money," Wall Street Journal, August 11, 2011.

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